By Garrett Baird, President & CEO of The Neat Company

Would you prefer to encounter a skunk in a crawl space or snake out a hair clog longer than you are tall instead of handling bookkeeping for your plumbing business? If that’s you, this article should go a long way toward helping you learn what to keep track of, make a solid plan for making your records consistent and ready for tax time and, ultimately, keep your bookkeeping gunk-free.

Track all your expenses

You can’t measure what you aren’t keeping track of. It’s no secret that running a plumbing business incurs a lot of necessary costs, such as tools, vehicles, payroll, office space, and advertising expenses. Knowing how much money your business spends and where it’s spent is the key to making strong financial decisions.

While it’s essential to document those expenses meticulously, that level of precision and accuracy can easily be achieved if you follow a few tricks.

Don’t mix business and personal expenses

When you’re so often running from one home plumbing emergency to another—especially as a small business or freelance plumber—it’s an easy thing to allow yourself to use your personal bank account and a personal credit card to make your payments. After all, you may think that your tax preparer will be able to sort out what’s what. But why spend an evening or your day off sorting receipts with a tax preparer when you can set up separate accounting systems by establishing a business bank account and obtaining a credit card to be used only for business? While you can do the extra work to identify business expenses among your personal records (or personal expenses among your business records)—and some financial software even can help you do this—your goal is to make noting both of these items as painless as possible.

Credit card statements often categorize expenses, which will allow you to see where your money went. It’s possible that you could visit a home improvement retailer to buy something for your home as well as for your business. Using separate cards for each purchase means that the work-related item will be properly tracked for the write-off. And the credit card is way better than using cash, where you may wind up with a receipt that you lose or can’t read when it’s time to balance your books or file your taxes.

Record everything you spend on your business

Bank and credit card statements are a good start, but every single penny you spend on your business should be tracked. While doing this is no lead-pipe cinch, paying attention to your business expenses will lead to a smoother tax season and more effective decisions about expanding the business, acquiring new assets like trucks, or which employees to hire and how to bill.

First, take the effort to learn which expenses are deductible. The IRS annually publishes a guide called Publication 535 if you’d like to get very, very deep into the weeds on the matter (though the 2022 version isn’t available yet). Many reliable sources simplify the list, such as this one that lists 55 small business tax deductions.

The key thing to remember is that a business expense must be both ordinary and necessary to be deductible. An ordinary expense is one that’s common in your trade or line of business. Necessary expenses are helpful and appropriate for your business. An expense doesn’t have to be indispensable to be necessary. For a plumbing contractor, this suggests a large number of items, including:

●     Tools

●      Advertising

●      Office Expenses

●      Phone and Internet

●      Insurance

●      Vehicles and Vehicle Maintenance (when 100% owned by the business and only used for business purposes)

●      Mileage (for 2022, that’s 58.5¢ per mile, so long as the mileage is tracked in a log)

●      Salaries and benefits for those working for you, including Federal Unemployment Taxes (FUTA), State Unemployment Taxes (SUTA), payroll processing, and payroll taxes for employees, including Social Security, Medicare taxes, and unemployment taxes.

The best way to attend to this is by doing it regularly. Some businesses track their expenses in a notebook or in a spreadsheet. An affordable financial management platform, like Neat, connects to the business bank account and credit card, and can turn your receipts, invoices, and bills into digital, searchable documents, matching them with your banking data. Such platforms also deliver precisely the kind of information your tax accountant will need to prepare and file your business taxes, which can save both time and money at tax time. Turnkey solutions exist, which can help you manage your books and see exactly where the business is in real-time, from your computer or on your mobile phone.

Look for a solution that automates essential accounting reports, such as P&Ls, cash flow statements, balance sheets, and expense reports. At the same time, the platform should make it easy to look at your cash balance, total sales, and your most important expenses instantly. A complete financial management platform would also provide you with the ability to create and send custom-designed invoices from either your computer or a mobile device. Such a platform should also make it possible for customers to make bank transfers or credit card payments with just one tap. It would make it just as easy to move the data from whatever you’re now using. Best of all, it would be designed to be easily understood and easy to use for business owners who aren’t accounting experts.

Watch Out

You can do a lot without a bookkeeper if you’ve got the right financial management platform. You should always watch out for these things (and use the software you get to help you do so):

●      Watch your cash flow. If your invoices are being paid late or not at all, you’re losing opportunities to grow your business (and may even find yourself unable to pay your own bills, risking your future)

●      Watch where your money comes from. By accepting payments by credit card and digitally, it becomes easy to track your business activity, and customers even prefer paying this way. You can even explore online payment options like bank transfers or credit/debit card payments.

●      Watch regularly. When you know the financial health of your business, you’ll be able to act on financial problems and repair them before they become a crisis.

●      Watch out for the IRS. Remember to set aside money to pay your estimated taxes when they’re due every quarter. And prepare for the possible IRS audit by keeping your records carefully. (See advice above about a financial management system.) Mike Michalowicz, author of Profit First, recommends opening a separate account just for your tax money, and making periodic deposits into it.

When you keep an eye on your business records regularly, you’ll find that you’re able to breathe a sigh of relief and spend the time you saved on the things that keep your plumbing business flush with cash. Make a house call on your own books, and choose the bookkeeping solution that works best for you.

Garrett Baird is President and CEO of The Neat Company (Neat). He joined the company in 2020 to lead its entrance into the digital accounting space, helping small business owners spend more time growing their businesses while transforming mundane bookkeeping into actionable insights.

 

By AKDSEO